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Once Again Cisco

06/17/13 04:32:08 PM
by Koos van der Merwe

Cisco has announced the release of a new product in its carrier routing family.

Security:   CSCO
Position:   Sell

The growth in Internet traffic and its resulting complexity has resulted in Cisco developing a routing solution to support their carrier-grade network services. Cisco should benefit from the trend with its new product with an expected revenue increase in its routing division, which has contributed about 17% of the company's total revenue in 2013. Is the share worth a buy?

Figure 1. Weekly chart for Cisco (CSCO).
Graphic provided by: AdvancedGET.
The weekly chart in Figure 1 shows how the share price dropped with the technology bubble burst of 2000. The C wave bottomed at $13.69 in August 2011. The share is presently trading at $24.09 in what looks like a Wave 3 in a new bull trend. With the break above the resistance line and the subsequent strong rise, the share looks interesting. However, with the RSI approaching overbought levels, you could wait for the Wave 4 correction before buying.

Figure 2. Daily chart for Cisco.
Graphic provided by: AdvancedGET.
The daily chart in Figure 2 displays an internal JM band. The JM Band is a 15-period simple moving average offset by 2% positive and 2% negative. The chart shows the buy and sell signals given by the JM internal band. At the moment, the price is in buy mode, but with the gap of May 16 (remember the mantra "a price falls to fill the gap"), and given that the RSI is giving a sell signal, you should now expect the price to fall and fill the gap. However, with the price falling to $23.00 on May 22, 2013 which is within the gap parameters, the fill the gap mantra could be complete. The price could therefore only fall to the support line at approximately the $23.48 level. This will be the Wave 4, a buying opportunity ahead of a Wave 5.

I would not be a buyer of Cisco at the moment. I would rather wait until the RSI suggests a buy.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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